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Schwazze Announces Second Quarter 2023 Financial Results

09 August 2023
  • Q2 Revenue of $42.4 Million; Income from Operations of $5.0 Million; Adjusted EBITDA of $13.8 Million or 33% of revenue 
  • Generated $2.7 Million of Operating Cash Flow 

DENVER, Colo., Aug. 9, 2023 /CNW/ - Medicine Man Technologies, Inc., operating as Schwazze, (OTCQX: SHWZ) (NEO: SHWZ) ("Schwazze" or the "Company"), today announced financial and operational results for the second quarter ended June 30, 2023.

Second Quarter 2023 Summary

 

For the Three Months Ended

$ in Thousands USD

June 30, 2023

March 31, 2023

June 30, 2022

Revenue

$42,375

$40,001

$44,263

Gross Profit

$24,519

$23,033

$25,156

Income from Operations

$4,957

$5,650

$9,036

Adjusted EBITDA1

$13,814

$14,525

$15,021

Operating Cash Flow

$2,683

$(880)

$(13,486)

______________________________

1 Adjusted EBITDA represents earnings before interest, taxes, depreciation, and amortization, adjusted for other income, non-cash share-based compensation, one-time transaction related expenses, or other non-operating costs. The Company uses adjusted EBITDA as it believes it better explains the results of its core business.

Management Commentary

"We continued to execute on our 'go deep' retail strategy in the second quarter, demonstrated by our acquisitions of Everest Apothecary in New Mexico in June, as well as Standing Akimbo and Smokey's in Colorado," said Nirup Krishnamurthy, CEO of Schwazze. "Although it is early in the integration process and these stores have yet to ramp, in July we began to recognize synergies from bulk purchasing, introducing new product assortment, and leveraging best cultivation practices to improve yields, among other improvements. We expect to realize additional benefits as we further integrate our assets in the months ahead.

"The cannabis market environment in Colorado and New Mexico remains a challenge due to pricing pressure and license proliferation in key markets. However, we are beginning to see early signs of wholesale pricing stabilization in Colorado and are hyper-focused on customer acquisition and experience, while maintaining our brand standards and margin through targeted promotions for customers. Through these efforts, we increased market share in both Colorado and New Mexico, demonstrating the effectiveness of our operating playbook and acquisition strategy, as well as our ability to execute in a competitive environment.

"Looking ahead, we will continue to run a lean operation while implementing the Schwazze retail playbook across our markets to expand our customer base, increase labor and price optimization, and improve customer loyalty and brand penetration. We are well positioned to continue driving strong adjusted EBITDA margins and consistent cash flow generation in 2023."

Recent Highlights

  • Completed the acquisition of Everest Apothecary in June, increasing the Company's New Mexico operations to 32 dispensaries, four cultivation facilities, two manufacturing facilities and over 400 employees statewide.
  • Appointed Nirup Krishnamurthy as Chief Executive Officer.
  • Acquired two Colorado retail dispensaries from Smokey's Cannabis Company.
  • Acquired Standing Akimbo, the largest medical cannabis dispensary in Colorado, and opened the Company's first medical dispensary in Colorado Springs under the Standing Akimbo banner.
  • Ecommerce penetration in New Mexico and Colorado grew approximately 45% and 15%, respectively, compared to the first quarter of 2023 when the program was first launched.
  • Experienced 17% sequential growth of new customer loyalty members in the second quarter of 2023.

Second Quarter 2023 Financial Results

Total revenue in the second quarter of 2023 was $42.4 million compared to $44.3 million for the same quarter last year. The decrease was primarily due to lower wholesale revenue resulting from a 25% year-over-year decline in wholesale pricing and the proliferation of new licenses in key New Mexico markets, partially offset by growth from new stores compared to the prior year period.

Gross profit for the second quarter of 2023 was $24.5 million or 57.9% of total revenue, compared to $25.2 million or 56.8% of total revenue for the same quarter last year. The increase in gross margin was primarily driven by efficiency gains across retail, cultivation, and production, partially offset by the aforementioned wholesale pricing pressure.

Operating expenses for the second quarter of 2023 were $19.6 million compared to $16.1 million for the same quarter last year. The increase was primarily due to the four-wall SG&A increases associated with 27 additional stores in Colorado and New Mexico that are still ramping, as well as an increase in stock-based compensation. This was partially offset by efficiencies implemented throughout the Company's operations.

Income from operations for the second quarter of 2023 was $5.0 million compared to $9.0 million in the same quarter last year. Net loss was $6.6 million compared to net income of $33.8 million for the second quarter of 2022, primarily driven by a $35.2 million change in the non-cash accounting revaluation of the derivative liability related to the Company's convertible note.

Adjusted EBITDA for the second quarter of 2023 was $13.8 million or 32.6% of revenue, compared to $15.0 million or 33.9% of revenue for the same quarter last year. The decrease in adjusted EBITDA margin was primarily driven by lower revenue and higher SG&A associated with new stores that are still ramping, partially offset by improved gross margin.

As of June 30, 2023, cash and cash equivalents were $19.9 million compared to $38.9 million on December 31, 2022, while operating working capital increased by $5.8 million to $10.0 million during this period. Total debt as of June 30, 2023, was $155.4 million compared to $127.8 million on December 31, 2022.

Schwazze CFO Forrest Hoffmaster added, "In addition to our focus on top line growth, supply chain efficiencies and cash generation, we are capitalizing on our hyper-regional retail strategy with a series of cost optimization programs that are improving our cash position and margins. We have begun to see the benefit of these initiatives and expect to drive further improvements in the months ahead."

Conference Call

The Company will conduct a conference call today, August 9, 2023, at 5:00 p.m. Eastern time to discuss its results for the second quarter ended June 30, 2023.

Schwazze management will host the conference call, followed by a question-and-answer period. Interested parties may submit questions to the Company prior to the call by emailing This email address is being protected from spambots. You need JavaScript enabled to view it..

Date: Wednesday, August 9, 2023
Time: 5:00 p.m. Eastern time
Toll-free dial-in number: (888) 664-6383
International dial-in number: (416) 764-8650
Conference ID: 70252888
Webcast: SHWZ Q2 2023 Earnings Call

The conference call will also be broadcast live and available for replay on the investor relations section of the Company's website at https://ir.schwazze.com.

Toll-free replay number: (888) 390-0541
International replay number: (416) 764-8677
Replay ID: 252888

If you have any difficulty registering or connecting with the conference call, please contact Elevate IR at (720) 330-2829.

About Schwazze

Schwazze (OTCQX: SHWZ) (NEO: SHWZ) is building a premier vertically integrated regional cannabis company with assets in Colorado and New Mexico and will continue to take its operating system to other states where it can develop a differentiated regional leadership position. Schwazze is the parent company of a portfolio of leading cannabis businesses and brands spanning seed to sale.

Schwazze is anchored by a high-performance culture that combines customer-centric thinking and data science to test, measure, and drive decisions and outcomes. The Company's leadership team has deep expertise in retailing, wholesaling, and building consumer brands at Fortune 500 companies as well as in the cannabis sector.

Medicine Man Technologies, Inc. was Schwazze's former operating trade name. The corporate entity continues to be named Medicine Man Technologies, Inc. Schwazze derives its name from the pruning technique of a cannabis plant to enhance plant structure and promote healthy growth. To learn more about Schwazze, visit www.schwazze.com.

Forward-Looking Statements

This press release contains "forward-looking statements." Such statements may be preceded by the words "may," "will," "could," "would," "should," "expect," "intends," "plans," "strategy," "prospects," "anticipate," "believe," "approximately," "estimate," "predict," "project," "potential," "continue," "ongoing," or the negative of these terms or other words of similar meaning in connection with a discussion of future events or future operating or financial performance, although the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements are not guarantees of future events or performance, are based on certain assumptions, and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company's control and cannot be predicted or quantified. Consequently, actual events and results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, risks and uncertainties associated with (i) regulatory limitations on our products and services and the uncertainty in the application of federal, state, and local laws to our business, and any changes in such laws; (ii) our ability to manufacture our products and product candidates on a commercial scale on our own or in collaboration with third parties; (iii) our ability to identify, consummate, and integrate anticipated acquisitions; (iv) general industry and economic conditions; (v) our ability to access adequate capital upon terms and conditions that are acceptable to us; (vi) our ability to pay interest and principal on outstanding debt when due; (vii) volatility in credit and market conditions; (viii) the loss of one or more key executives or other key employees; and (ix) other risks and uncertainties related to the cannabis market and our business strategy. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company's filings with the Securities and Exchange Commission (SEC), including the Company's Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q. Investors and security holders are urged to read these documents free of charge on the SEC's website at http://www.sec.gov. The Company assumes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise except as required by law.

MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
For the Periods Ended June 30, 2023 and December 31, 2022
Expressed in U.S. Dollars

 

June 30,

 

December 31,

 

2023

 

2022

 

(Unaudited)

 

(Audited)

ASSETS

     

Current Assets

     

Cash & Cash Equivalents

$

19,872,099

 

$

38,949,253

Accounts Receivable, net of Allowance for Doubtful Accounts

 

6,179,662

  

4,471,978

Inventory

 

33,821,282

  

22,554,182

Notes Receivable - Current, net

 

-

  

11,944

Marketable Securities, net of Unrealized Loss of $1,816 and Loss of $39,270, respectively

 

456,099

  

454,283

Prepaid Expenses & Other Current Assets

 

6,203,056

  

5,293,393

Total Current Assets

 

66,532,198

  

71,735,033

Non-Current Assets

     

Fixed Assets, net Accumulated Depreciation of $7,007,889 and $4,899,977, respectively

 

31,128,357

  

27,089,026

Investments

 

2,000,000

  

2,000,000

Goodwill

 

75,968,130

  

94,605,301

Intangible Assets, net Accumulated Amortization of $24,981,817 and $16,290,862, respectively

 

168,892,605

  

107,726,718

Note Receivable - Non-Current, net

 

1,313

  

-

Other Non-Current Assets

 

1,222,805

  

1,527,256

Operating Lease Right of Use Assets

 

23,213,504

  

18,199,399

Total Non-Current Assets

 

302,426,714

  

251,147,700

Total Assets

$

368,958,912

 

$

322,882,733

      

LIABILITIES & STOCKHOLDERS' EQUITY

     

Current Liabilities

     

Accounts Payable

$

12,105,250

 

$

10,701,281

Accounts Payable - Related Party

 

6,073

  

22,380

Accrued Expenses

 

6,398,115

  

7,462,290

Derivative Liabilities

 

6,538,485

  

16,508,253

Lease Liabilities - Current

 

4,026,595

  

3,139,289

Current Portion of Long Term Debt

 

6,583,334

  

2,250,000

Income Taxes Payable

 

14,113,477

  

7,297,815

Total Current Liabilities

 

49,771,329

  

47,381,308

Non-Current Liabilities

     

Long Term Debt, net of Debt Discount & Issuance Costs

 

148,861,810

  

125,521,520

Lease Liabilities - Non-Current

 

22,096,232

  

17,314,464

Deferred Income Taxes, net

 

178,031

  

502,070

Total Non-Current Liabilities

 

171,136,073

  

143,338,054

Total Liabilities

$

220,907,402

 

$

190,719,362

      

Stockholders' Equity

     

Preferred Stock, $0.001 Par Value. 10,000,000 Shares Authorized; 86,994 Shares Issued and

     

86,994 Shares Outstanding as of June 30, 2023 and 86,994 Shares Issued and 86,994 Shares

     

Outstanding as of December 31, 2022.

 

87

  

87

Common Stock, $0.001 Par Value. 250,000,000 Shares Authorized; 71,730,449 Shares Issued

     

and 70,590,451 Shares Outstanding as of June 30, 2023 and 56,352,545 Shares Issued and

     

55,212,547 Shares Outstanding as of December 31, 2022.

 

71,730

  

56,353

Additional Paid-In Capital

 

201,116,605

  

180,381,641

Accumulated Deficit

 

(51,103,785)

  

(46,241,583)

Common Stock Held in Treasury, at Cost, 920,150 Shares Held as of June 30, 2023 and 920,150

     

Shares Held as of December 31, 2022.

 

(2,033,127)

  

(2,033,127)

Total Stockholders' Equity

 

148,051,510

  

132,163,371

Total Liabilities & Stockholders' Equity

$

368,958,912

 

$

322,882,733

MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND (LOSS)
For the Three and Six Months Ended June 30, 2023 and 2022
Expressed in U.S. Dollars

 

For the Three Months Ended

 

For the Six Months Ended

 

June 30,

 

June 30,

 

2023

 

2022

 

2023

 

2022

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

Operating Revenues

           

Retail

$

38,098,957

 

$

38,138,799

 

$

73,919,068

 

$

64,664,515

Wholesale

 

4,274,483

  

6,080,843

  

8,333,408

  

11,288,231

Other

 

1,660

  

43,750

  

123,560

  

88,200

Total Revenue

 

42,375,100

  

44,263,392

  

82,376,036

  

76,040,946

Total Cost of Goods & Services

 

17,856,050

  

19,106,944

  

34,824,320

  

39,946,995

Gross Profit

 

24,519,050

  

25,156,448

  

47,551,716

  

36,093,951

Operating Expenses

           

Selling, General and Administrative Expenses

 

8,838,936

  

6,666,044

  

19,054,847

  

13,521,755

Professional Services

 

487,860

  

1,516,544

  

1,675,224

  

4,101,016

Salaries

 

7,389,172

  

7,240,368

  

13,154,165

  

12,537,145

Stock Based Compensation

 

2,845,691

  

697,842

  

3,060,235

  

1,688,925

Total Operating Expenses

 

19,561,659

  

16,120,798

  

36,944,471

  

31,848,841

Income from Operations

 

4,957,391

  

9,035,650

  

10,607,245

  

4,245,110

Other Income (Expense)

           

Interest Expense, net

 

(7,890,439)

  

(7,489,205)

  

(15,636,294)

  

(14,791,459)

Unrealized Gain (Loss) on Derivative Liabilities

 

1,468,083

  

36,705,764

  

9,969,768

  

23,288,292

Other Loss

 

-

  

-

  

-

  

7

Unrealized Gain (Loss) on Investments

 

-

  

(5,264)

  

1,816

  

(13,813)

Total Other Income (Expense)

 

(6,422,356)

  

29,211,295

  

(5,664,710)

  

8,483,027

Pre-Tax Net Income (Loss)

 

(1,464,965)

  

38,246,945

  

4,942,535

  

12,728,137

Provision for Income Taxes

 

5,142,559

  

4,405,962

  

9,804,737

  

5,665,856

Net Income (Loss)

$

(6,607,524)

 

$

33,840,983

 

$

(4,862,202)

 

$

7,062,281

            

Less: Accumulated Preferred Stock Dividends for the Period

 

(2,353,883)

  

(1,766,575)

  

(4,383,277)

  

(3,510,019)

Net Income (Loss) Attributable to Common Stockholders

$

(8,961,407)

 

$

32,074,408

 

$

(9,245,479)

 

$

3,552,262

            

Earnings (Loss) per Share Attributable to Common Stockholders

           

Basic Earnings (Loss) per Share

$

(0.15)

 

$

0.65

 

$

(0.16)

 

$

0.07

Diluted Earnings (Loss) per Share

$

(0.15)

 

$

0.24

 

$

(0.16)

 

$

0.03

            

Weighted Average Number of Shares Outstanding - Basic

 

60,538,317

  

49,178,494

  

57,999,461

  

49,178,494

Weighted Average Number of Shares Outstanding - Diluted

 

60,538,317

  

133,481,667

  

57,999,461

  

133,481,667

Comprehensive Income (Loss)

$

(6,607,524)

 

$

33,840,983

 

$

(4,862,202)

 

$

7,062,281

MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2023 and 2022
Expressed in U.S. Dollars

 

For the Six Months Ended

 

June 30,

 

2023

 

2022

 

(Unaudited)

 

(Unaudited)

Cash Flows from Operating Activities:

     

Net Income (Loss) for the Period

$

(4,862,202)

 

$

7,062,281

Adjustments to Reconcile Net Income (Loss) to Cash for Operating Activities

     

Depreciation & Amortization

 

10,826,289

  

1,553,817

Non-Cash Interest Expense

 

1,992,280

  

2,165,366

Non-Cash Lease Expense

 

3,316,171

  

4,705,059

Deferred Taxes

 

(324,039)

  

-

Change in Derivative Liabilities

 

(9,969,768)

  

(23,288,292)

Amortization of Debt Issuance Costs

 

843,025

  

843,025

Amortization of Debt Discount

 

4,088,319

  

3,590,017

(Gain) Loss on Investments, net

 

(1,816)

  

13,813

Stock Based Compensation

 

3,060,235

  

776,917

Changes in Operating Assets & Liabilities (net of Acquired Amounts):

     

Accounts Receivable

 

(923,614)

  

(1,689,914)

Inventory

 

(5,937,100)

  

3,924,172

Prepaid Expenses & Other Current Assets

 

(909,663)

  

(5,219,898)

Other Assets

 

304,451

  

(185,589)

Change in Operating Lease Liabilities

 

(2,661,202)

  

(8,873,051)

Accounts Payable & Other Liabilities

 

(3,853,458)

  

5,922,458

Income Taxes Payable

 

6,815,662

  

(1,163,770)

Net Cash Provided by (Used in) Operating Activities

 

1,803,570

  

(9,863,589)

      

Cash Flows from Investing Activities:

     

Collection of Notes Receivable

 

10,631

  

-

Cash Consideration for Acquisition of Business, net of Cash Acquired

 

(15,834,378)

  

(56,875,923)

Purchase of Fixed Assets

 

(4,704,093)

  

(7,076,116)

Purchase of Intangible Assets

 

-

  

(2,825)

Net Cash Provided by (Used in) Investing Activities

 

(20,527,840)

  

(63,954,864)

      

Cash Flows from Financing Activities:

     

Payment on Notes Payable

 

(750,000)

  

-

Proceeds from Issuance of Common Stock, net of Issuance Costs

 

397,116

  

1,280,660

Net Cash Provided by (Used in) Financing Activities

 

(352,884)

  

1,280,660

      

Net (Decrease) in Cash & Cash Equivalents

 

(19,077,154)

  

(72,537,793)

Cash & Cash Equivalents at Beginning of Period

 

38,949,253

  

106,400,216

Cash & Cash Equivalents at End of Period

$

19,872,099

 

$

33,862,423

      

Supplemental Disclosure of Cash Flow Information:

     

Cash Paid for Interest

$

10,931,090

 

$

9,004,575

MEDICINE MAN TECHNOLOGIES, INC.
ADJUSTED EBITDA RECONCILIATION (NON-GAAP)
For the Three and Six Months Ended June 30, 2023 and 2022
Expressed in U.S. Dollars

 

For the Three Months Ended

 

For the Six Months Ended

 

June 30,

 

June 30,

 

2023

 

2022

 

2023

 

2022

Net Income (Loss)

$

(6,607,524)

 

$

33,840,983

 

$

(4,862,202)

 

$

7,062,281

Interest Expense, net

 

7,890,439

  

7,489,205

  

15,636,294

  

14,791,459

Provision for Income Taxes

 

5,142,559

  

4,405,962

  

9,804,737

  

5,665,856

Other (Income) Expense, net of Interest Expense

 

(1,468,083)

  

(36,700,500)

  

(9,971,584)

  

(23,274,486)

Depreciation & Amortization

 

3,865,190

  

2,960,603

  

10,478,004

  

5,506,627

Earnings Before Interest, Taxes, Depreciation and

           

Amortization (EBITDA) (non-GAAP)

$

8,822,581

 

$

11,996,253

 

$

21,085,249

 

$

9,751,737

Non-Cash Stock Compensation

 

2,845,691

  

697,842

  

3,060,235

  

1,688,925

Deal Related Expenses

 

733,718

  

1,656,529

  

1,929,520

  

3,913,463

Capital Raise Related Expenses

 

-

  

41,312

  

35,068

  

605,632

Inventory Adjustment to Fair Market Value for

           

Purchase Accounting

 

-

  

246,613

  

-

  

6,507,047

Severance

 

185,681

  

44,537

  

304,117

  

49,102

Retention Program Expenses

 

115,000

  

-

  

395,632

  

-

Employee Relocation Expenses

 

26,468

  

332

  

52,175

  

19,110

Other Non-Recurring Items

 

1,085,005

  

338,050

  

1,477,028

  

334,632

Adjusted EBITDA (non-GAAP)

$

13,814,144

 

$

15,021,468

 

$

28,339,024

 

$

22,869,648

Revenue

 

42,375,100

  

44,263,392

  

82,376,036

  

76,040,946

Adjusted EBITDA Percent

 

32.6 %

  

33.9 %

  

34.4 %

  

30.1 %

MEDICINE MAN TECHNOLOGIES, INC.
OPERATING WORKING CAPITAL RECONCILIATION (NON-GAAP)
For the Periods Ended June 30, 2023 and December 31, 2022
Expressed in U.S. Dollars

 

June 30,

 

December 31,

 

2023

 

2022

Current Assets

$

66,532,198

 

$

71,735,033

Less: Cash & Cash Equivalents

 

(19,872,099)

  

(38,949,253)

Adjusted Current Assets (non-GAAP)

 

46,660,099

  

32,785,780

      

Current Liabilities

$

49,771,329

 

$

47,381,308

Less: Derivative Liabilities

 

(6,538,485)

  

(16,508,253)

Less: Current Portion of Long Term Debt

 

(6,583,334)

  

(2,250,000)

Adjusted Current Liabilities (non-GAAP)

 

36,649,510

  

28,623,055

      

Operating Working Capital (non-GAAP)

$

10,010,589

 

$

4,162,725

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